What we know Wednesday: Peak Oil

Not So Distant Future?

As a former oil industry executive, I’ll let you in on a little secret of what we talked about around the $1,000 water cooler. Peak Oil, and Strippers.

For those of you that don’t know what Peak Oil is I’ll offer a quick explanation, if you don’t know what a Stripper is I suggest you get out more.

All the major oil fields in the world were discovered before 1960, only small fields have been discovered since. For the last 50 years we have been relentlessly drilling new wells into these fields.

The oil from a well doesn’t last forever, the wells I drilled had a life span of 5 years of strong oil production, then a drizzle for the next 5 years. A well out in Texas can last a few decades before going into decline.

Naturally on these fields the wells concentrate around the biggest producers in areas that have the greatest chance of successfully hitting oil. The older the field the farther away from the big producers we are forced to drill.

In a new field, drillers can tap into the same vein as a big producer and get large amounts of oil making the fields total output increase quickly. This increase drops as the optimum spots to drill are quickly filled up.

In the Nash Oil Field where I drilled we would get excited about getting the chance to drill several miles away from a big producer.

Drilling father away from the main source of oil lowers the chances of success. In the 90s companies that drilled in the field I was working were hitting oil with 1 well for every 3 they drilled. By the time I entered the industry in the ’04 the odds were down to 1 in 5.

So as a field ages, its larger wells go into decline and you need to drill more holes to hit oil. After a while new wells aren’t being hit fast enough to overtake the decline in the old wells and the whole field goes into decline.

With no new major oil fields being discovered since the 60s as one field goes into decline it put more pressure on the fields that aren’t in decline, making them go into decline faster. Eventually, you can’t drill fast enough to offset the declining wells.

In the United States, The entire domestic oil industry reached its peak in 1970. We were producing 11 million barrels of oil a day; this has since declined to 5 million.

With the United States no longer increasing its production of oil, pressure was put on the rest of the world to develop their oil fields. Norway increased drilling in the North Sea, Russia became a major player in the energy market and Saudi Arabia went from being able to keep its national treasury in a shoebox, to being the land of oil billionaires.

But no new oil fields have been developed they are just exploiting their existing fields faster, and just like the Nash Oil field, these fields will eventually go into decline.

Kuwait has announced that its fields are all in decline, Several reports I’ve seen out of Iraq suggest that Saddam overworked his oil fields in order to achieve the 3 million barrels a day prior to Operation Iraqi Liberation (OIL) and there are serious doubts as to if it is technically possible for Saudi Arabia to increase its oil production beyond its current levels.

In 2008 when demand for overtook the amount oil that the world could produce sending oil and gas prices soaring, the Republican response was summed up as, “Drill, Baby, Drill”. Unfortunately merely building more oil drilling rigs and drilling more would do little to produce more oil.

In the case of the Nash Oil field where we were getting a hit rate of 1 out of 5, if you doubled the amount of oil rigs drilling there you would quickly run out of spots you can hit 1 out of every 5 wells you drill, and they would have to move on to places where 1 out of 8 was a good bet, then 1 out of 10, 1 out of 20. And every new well would produce smaller amounts.

While this drilling was going on, the drilling itself would push up the demand for oil as it takes a lot of energy to drill a well. In the declining fields you would quickly hit a point where the oil it took to drill 20 or so wells would be more than the one small well could produce.

As soon as it takes more energy to produce oil than the oil gives out there is no point in drilling.

In other words the World’s oil supply may have peaked at 81 million barrels a day that was produced in June of 2008, and we could be looking at having the supply of oil start to dwindle.

The Great Recession of 2008-2009, Great Depression 2.0, or whatever you care to call it dropped consumer demand for oil by 8% the greatest amount ever recorded. In order for the global economic engine to recover the US needs to continue to increase its demand for energy by 1.5% annually while oil production declines by 0.5% every year.

If no drastic action is taken this means we can continue at current rate of recovery with 10 to 20% unemployment, tent cities popping up in all major cities, and all the things you hear about on the news, for only 4 more years before we hit the point where demand overtakes supply again, and things will get really bad.

Now that I’ve bummed you out enough I’ll point to the good news that I started in my post Temper-Tantrum Tuesday: Energy Conservation and Solar Energy and wrap up both posts in my Fantastic Future Friday: Alternative Energy.